Moody's downgraded 10 small to mid-sized banks last night due to concerns about their lending and commercial real estate exposure.
I think that there's a short trade setup in the works with the downgrade and troubling debt exposure as catalysts.
Of those downgraded, MTB looks like a fade to me. Moody's downgraded them on account of their heavy commercial real estate (CRE) exposure, which just under 300% of its core capital, a key threshold for regulators.
MTB is in good company as many banks have very high levels of CRE loan concentration, with 293 exceeding the 300% risk-based capital threshold. The business-centric regional lender has a lot of SMB revolvers on its balance sheet as well, potentially further increasing credit risks.
US CMBS delinquencies rose to 5% year-over-year. This has been the largest three-month increase since 2000! My view is these are early innings in the commercial real estate debacle. I believe office and retail building loans are at the greatest risk, particularly in metropolitan areas such as San Francisco, New York, etc.
Charge-offs are rising significantly year-over-year as commercial real estate continues to demonstrate weakness, particularly within office buildings located in metropolitan areas.
According to Moody's there are about $1.4T of CRE loans maturing between the end of Q2 2023 and the end of 2024, and a fair amount of those loans are within the troubled office building segment. There are approximately $2.436T of total CRE loans.
I'm looking for price to retrace back to $122.14, then $93.56. Would manage risk by covering above $143. Then, if we break down below the weekly EMA(20) I would set my stop above there by $1 so I am in profit if I do get stopped out.
We can see with the chart above, when this stock does break below the weekly EMA(20) it tends to have continuation.
MTB earnings are already out for this season, so I would let this trade to play out over about 2-3 months. After that I would exit if we aren't approaching my targets and we're nearing the next earnings report.